The cost of backhaul from Tasmania to the mainland of Australia for the National Broadband Network could hamper competition among retail service providers (RSPs) in the state, several industry players say.

James Spenceley, CEO at Vocus Communications, says while the company is looking to build backhaul for the NBN on a national basis, it currently does not make financial sense for the company to provide backhaul from Melbourne to Hobart due to its cost.

He says it was cheaper to move traffic from Sydney to LA up to five years ago than it is to move traffic from Melbourne to Hobart.

“The cost to set it up and the amount people that would use it when the cost is that high is so small – we couldn’t make it stack up," he says.

“There’s just no competition … They have no incentive to actually increase the usage down there. I think it’s been a struggle for a lot of people for a long time.”

Tasmania is serviced by three cables connecting the state to the mainland – Basslink, which is owned by Basslink Telecom, and Telstra’s two Bass Strait fibre links.

ISPs only need one cable to connect to the mainland. However, to provide redundancy a second cable is required, which means purchasing backhaul from Telstra.

Prices for backhaul from Tasmania to the mainland were set by the Australian Competition and Consumer Commission (ACCC) in June 2012.

In its final access determination (FAD) for domestic transmission capacity service (DTCS), the ACCC ruled (PDF) a 40 per cent uplift in prices for backhaul from Tasmania to Melbourne was warranted due to the higher cost of providing services over a submarine cable.

“Services to Tasmania are regarded as regional services because of their location, traffic density, demand and the need for submarine cable connection…” the ACCC stated in its report.

“These services carry traffic through Hobart in the south and, to a lesser extent, Launceston in the north. ACCC analysis found that the average price of submarine routes is 39 per cent higher than mainland inter-capital routes. The FAD therefore provides a 40 per cent increase of the price of a 300km cable for DTCS routes from the mainland to Tasmania.”

However, in its submission, Telstra argued against that the “Commission must set prices in the FAD that do not prevent an efficient service provider supplying the highest quality service from obtaining a normal rate of return on its investment.

“The proposed uplift factor of 40 per cent fails to achieve this, as it fails to recognise the increased costs incurred with supplying a geographically diverse submarine cable across the Bass Strait. Further, if the Commission were to set an FAD price for the highest quality service provider that does not properly account for the higher costs of geographic path protection, higher quality service providers will be unable to recoup the costs of providing a higher quality service.”

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